Since Jan. 1, exchange- traded funds that invest in a basket of green, or alternative energy and clean tech, stocks are down more than 20 percent – steeper declines than the Dow Jones industrial average, S&P 500 or Nasdaq.

The PowerShares Cleantech PortfolioETF (PZD) and First Trust Nasdaq Clean Edge US ETF (QCLN) are off 31 percent and 16 percent, respectively, from their 2007 highs.

In addition, individual stocks that were the darlings of Wall Street in 2007 have crashed and burned. Solar photo-voltaic company, Sunpower (SPWR), is down 62 percent off its $164 high on Nov. 8.

Adding fuel to the firesale, sell-side analysts who promoted these stocks to new highs in 2007, reversed their bullish assessments of solar in 2008.

Yet a review of recent financial statements shows no real reason for the green-sector beat down. For example, SPWR’s revenue last year increased 228 percent compared to 2006 and the company expects sales to add another 68 percent gain this year, to $1.3 billion.

The reason solar, wind, geothermal and power conservation stocks crashed largely comes down to fears of recession and to politics – as opposed to a major bubble across the green industry.

While there are exceptions like waste-to-energy, most alternative energies depend on federal tax credits. The production tax credit (PTC) provides 19 cents per kilowatt hour for renewable energies, while the investment tax credit (ITC) offers a 30 percent rebate on the cost of a solar system.

But the tax credits “sunset” every year or two and must be renewed, creating a boom-and-bust cycle. Investors dance like John Travolta in “Saturday Night Fever” every time the credits are extended but get cold feet when the deadlines approach.

And with the PTC and ITC going the way of the dodo on Dec. 31, fears of recession and a credit crunch have all conspired against green investors.

For a third time now the House has passed a multi-year extension. But Democrats insist on funding it with a tax hike on the oil and gas industry, which Senate Republicans and President Bush oppose.

The Senate will reject the House bill again when it votes in mid-April. Still, there is widespread bipartisan support for renewable energy.

What is likely is that the Solar Energy Industry Association will push Democrats to pass a one-year extension to ease investor tensions and then try to coerce lawmakers into an additional extension in 2009 – possibly with a friendlier Congress and White House.